Where and When Will the Housing Market Recover?

by Neal Frankle, CFP ®

When will the housing market recover? Is now the time to buy a house or to make an investment in rental real estate? If you are looking for an answer, you may find the situation confusing. On the one hand, people are signing real estate purchase agreements in big numbers compared to 18 months ago. This is true, but does that mean it’s clear skies ahead for homeowners? Maybe not. Many of the people signing those contracts are canceling them as their personal financial conditions change. Also, it’s tough to qualify for a mortgage. Of course nobody knows for certain what is ahead for the housing market. But there are a few tell-tale signs that are signaling what the future may have in store for real estate.

Population Growth

You can learn a great deal by looking at the 2011 Census estimates. While there was a shift to the Sun Belt, overall population only grew by 2.8 million. That is a .92% growth, the lowest since WWII ended. People are having fewer babies, and legal immigrants aren’t coming in the numbers they used to. This is likely a result of our last recession.

And the population didn’t grow too much over the last decade either. In fact, from 2000 through 2010, the population growth was the slowest since the Great Depression.

Overall Real Estate Market

Home affordability is greater than it has been in decades. Mortgage rates are ridiculously low and prices are in the gutter. That argues for a quick turnaround. But it’s not all a rosy picture. Almost 30% of homeowners owe more on their home than it is worth, according to Zillow. That is a mind-boggling number. And according to RealtyTrac, one in every 579 homes is in some phase of foreclosure. In California and Nevada, the number is about 1 in every 200. Ouch! Is there any reason for optimism? In a word, yes.

Points of Light

Keep in mind that the housing market recovery will manifest itself locally. We’re not likely to see a national recovery soon. In fact while some states will experience real estate price recovery, other states will likely experience continued weakness. The forces that will strengthen real estate prices are population growth, strong job growth, stable infrastructure, a good education system and low foreclosure rates.

Where can you find such places with these characteristics? Here are a few ideas:

South Florida

It’s interesting. Florida went through the ringer and experienced very painful real estate price declines in the latter half of the 2000s. Yet existing-home sales are up 11%, comparing November 2011 to November 2010. And while Florida does have a huge foreclosure inventory, that inventory is declining.

Part of that decline is being fueled by foreign buyers. Another helping hand has come from Florida’s population growth. 256,000 people moved to Florida from April 2010 through June 2011.

According to ClearCapital, home prices are still off almost 60% since 2006, but that may be about to change. In Miami, existing-home sales rose 41% from October 2010 to October 2011. That looks really good compared to the national average, which saw no growth whatsoever.

Washington, D.C.

Who says that out-of-control government proliferation is a bad thing? Not the folks who own real estate in Washington, D.C. In fact, D.C. grew faster than any of the states. The last time that happened was over 70 years ago. Employment is strong, and D.C. offers high-paying jobs. On top of that, there is not much build-able land. The population continues to grow and that’s pushing prices up.

Detroit

Detroit was decimated in the housing bust. And the average home price is still under $20,000. But the Michigan Realtors Association reports that sales rose 5.6%.

The automobile industry is crawling out of the ash heap. Jobs are being created, which in turn is pushing real estate prices up. In addition, job growth in the auto industry is being fueled by regulations that require automakers to improve safety and fuel efficiency. Employment is still much lower than at its peak, but it is far higher than it was at the bottom in 2009. Of course Detroit has a huge number of people who are underwater on their mortgages, and foreclosures are still high. But continued employment growth should also help real estate prices firm in the near term.

What about the rest of us?

If you live in an area where foreclosures are high, don’t expect to see a quick real estate recovery. For your information, one quarter of all real estate sales are foreclosures nationwide. In some places like Atlanta, Riverside California and Las Vegas, the number is much higher.

What’s happening with real estate in your neck of the woods? Do you see more or fewer “For Sale” signs? Do you see signs of improvement? What are they?

Other Resources:

How to Work a Short Sale Package Fast

Use an Installment Sale to Sell Your Home Fast

Declare Bankruptcy without Losing Your Home Equity

Outside Resources:

2012 U.S. Census

 

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